Appeals court ruling could be 'death' of software patents

A U.S. appeals court has ruled that an abstract idea is not patentable simply because it is tied to a computer system, signaling what one judge described as the "death" of software and business method patents.

The U.S. Court of Appeals for the Federal Circuit ruled Friday that four patents held by electronic marketplace Alice are too abstract for a patent, despite a long-standing legal assumption that software running on a computer is eligible for patents.

The implications of the case are huge, wrote Judge Kimberly Moore, dissenting in part with the majority decision.

The ruling in CLS Bank v. Alice gives "staggering breadth to what is meant to be a narrow judicial exception" on patent ineligibility, she wrote. "And let's be clear: if all of these claims, including the system claims, are not patent-eligible, this case is the death of hundreds of thousands of patents, including all business method, financial system, and software patents as well as many computer implemented and telecommunications patents."

Several recent U.S. Supreme Court rulings against patent eligibility are "causing a free fall in the patent system," Moore added. "Today, several of my colleagues would take that precedent significantly further, lumping together the asserted method, media, and system claims, and holding that they are all patent-ineligible."

But Julie Samuels, an intellectual property lawyer with the Electronic Frontier Foundation, said the ruling gives little guidance to courts on patent eligibility. While judges on the court agreed Alice's patents weren't valid, they agreed on little else, she said.

Five judges in the 10-judge court sided with the majority opinion, while five other judges concurred in part and dissented in part. In addition to the majority ruling, judges filed five other comments on the case.

"We have not very much more direction as to what's patentable," said Samuels, who filed a brief asking the court to invalidate the Alice patents. "This ruling is all over the place."

The variety of opinions from the judges leaves the case open for Supreme Court review, she said. "The only thing the judges seem to agree on is that we need more clarity, but they can't even figure out what that looks like," Samuels added. "No one understands what the hell is or isn't patentable, including the ... federal circuit."

In the case, defendant CLS argued that Alice's four software patents covering a computerized trading platform for currencies were too abstract to be patentable. A district court agreed, but the appeals court reversed the decision.

The appeals court, however, heard arguments in February to examine whether an abstract idea combined with a computer is patentable, and whether some software patent claims involving methods, systems or storage should be grounds for granting a patent.

"There is nothing in the asserted method claims that represents 'significantly more' than the underlying abstract idea," Judge Alan Lourie wrote for the majority. "As described, adding generic computer functions to facilitate performance" is not enough to make an abstract idea patentable.

Alice's lawyers had argued that the patents covered specific ways a computer is configured to run the company's trading platform, but Lourie rejected that argument. Adam Perlman, Alice's lawyer in the federal circuit hearing, declined to comment Friday.

The patented processes of "providing end-of-day instructions to the exchange institutions to reconcile the parties' real-world accounts with the day's accumulated adjustments to their shadow records is a similarly trivial limitation that does not distinguish the claimed method," Lourie wrote. "Whether the instructions are issued in real time, every two hours, or at the end of every day, there is no indication in the record that the precise moment chosen to execute those payments makes any significant difference in the ultimate application of the abstract idea."

Moore agreed with the majority that an abstract idea is not patentable when it's tied to a computer, but she argued the Alice patents went beyond abstract ideas into "a practical application of the underlying idea, limited to the specific hardware recited and the algorithms disclosed to perform the recited functions."

The case generated briefs from Google, Facebook, Newegg and software trade group BSA, with some tech companies arguing the Alice patents should be invalid.

Grant Gross covers technology and telecom policy in the U.S. government for The IDG News Service. Follow Grant on Twitter at GrantGross. Grant's e-mail address is grant_gross@idg.com.

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